What to buy from meager insurance payout?

Here's my problem, I have a 1993 Magna which was rear ended this week, it's drivable, BUT the insurance co have had the quote from the panel beaters and are sending an assessor out as they may write it off. Now, I'd be lucky to get $2500 payout for it. Would I be better off buying as late a model as I can get of a small hatch or similar (I've seen mitsubishi lancers 1993 for around that price) OR in browsing the car ads I've seen 1984/5 model BMW's for that price, in excellent condition. (and they look sorta cool)

Has anyone done this or something similar, bought an older car of higher quality in preference to a later model cheaper quality car. Is servicing more expensive etc?

Some feedback would be appreciated.